US Regulator Warned Banks on Crypto — Not Order Full Ban: Report

On Jan 3, 2025 at 11:21 pm UTC by · 3 mins read

Pause letters suggest that while banks were directed to temporarily hold back on expanding crypto services, there was no blanket order to cut off the sector.

Freshly released documents reported by Reuters reveal how US regulators have approached crypto activities within the banking sector. Contrary to widespread claims of “debanking,” banks were advised to pause direct crypto ventures in 2022 and 2023 but were not barred from serving crypto companies.

The Federal Deposit Insurance Corporation (FDIC) handed over supervisory “pause letters” to unidentified banks after a legal challenge by History Associates Incorporated, a firm hired by Coinbase. This disclosure is part of Coinbase’s ongoing push to highlight what it calls an effort to disconnect crypto businesses from traditional banking.

These letters, first made public in December, gained added attention after a judge ordered the FDIC to provide less-redacted versions. A fresh set of 25 letters, including two previously undisclosed, further highlights the cautious approach taken by regulators.

FDIC’s Crypto Pause — No Blanket Ban

The letters suggest that while banks were directed to temporarily hold back on expanding crypto services, there was no blanket order to cut off the sector. Instead, FDIC staff requested banks to pause new initiatives or answer detailed queries before proceeding with crypto-related projects.

An internal FDIC memo from 2022, also released on Friday, emphasizes stricter scrutiny for banks directly engaging in crypto activities, such as holding assets in custody, compared to those offering standard banking services to crypto firms. It highlights the “significant safety and soundness risks” tied to crypto ventures, noting that these risks continue to evolve.

This stance aligns with comments made by FDIC Chairman Martin Gruenberg in December. He stated:

 “The agency does not “debank” crypto firms in terms of access to bank accounts, but direct crypto engagement by banks is a “subject of supervisory attention.”  

Congressional Call-Out: Coinbase Demands Deeper Probe

Coinbase’s Chief Legal Officer, Paul Grewal, responded to the updated disclosures with sharp criticism. Posting on X, he called for a deeper congressional investigation, stating that the letters revealed “a coordinated effort to stop a wide variety of crypto activity.” Coinbase argues that these measures reflect a broader attempt to stifle the sector’s growth.

The timing of these revelations is notable. With an incoming administration expected to adopt a softer stance on crypto regulation, a shift in policy could be on the horizon. President-elect Donald Trump is anticipated to issue an executive order easing regulatory pressures on the crypto industry soon after his January 20 inauguration.

Regulators face the challenge of maintaining financial stability while addressing the risks tied to crypto, including scams and volatility. These documents offer a rare look at how federal agencies navigate this balance, underscoring caution without outright exclusion.

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